The Ministry of Finance has proposed a tax on houses depending on their construction value as part of a draft law on property tax.

Under the proposed law, there are two options: imposing tax on houses with construction value of either more than VND700 million (US$30,400) or VND1 billion ($43,500).

The proposed tax rate is 0.3 or 0.4 per cent annually, with only the surplus construction value above the proposed threshold to be taxed.

For example, if the threshold is set at VND700 million, the owner of a VND1.7 billion ($74,000) house would have to pay tax on VND1 billion, equivalent to VND3-4 million ($132-176) per year.

The construction value of a house is determined by factors including its type, scale and how many years it has been in use since construction.

If the tax on houses worth more than VND700 million is applied, the finance ministry will be able to collect property tax of about VND23.3 trillion ($1.01 billion) to VND31 trillion ($1.4 billion) per year.

If the second option is approved, the tax collection is estimated to vary from VND22.7 trillion ($987 million) to VND 30.3 trillion ($1.3 billion).

The ministry currently favours taxing houses worth more than VND700 million at a rate of 0.4 per cent.

According to Pham Dinh Thi, director of Ministry of Finance’s Tax Policy Department, data from other countries show that the lowest property tax rate stands at 0.2 per cent. However, countries mostly apply high rates like Indonesia’s 0.5 per cent and the 1-2 per cent in the Philippines.

He said taxing houses and trade-service construction work will impact enterprises’ production and business. The draft is scheduled to be submitted to National Assembly for feedback in 2020.

The ministry is also seeking to increase land tax.

Under the same draft law, land taxes in some categories might rise by multiple times compared with those currently stated in the Law on Non-Agricultural Land Use Taxes.

For example, housing land might get a 0.3 to 0.4 per cent tax rate, ten times higher than current minimum rate of 0.03 per cent.

The draft law on property tax also proposes tax on personal vehicles such as planes, yachts and cars worth more than VND1.5 billion ($65,000).

Controversies heated

Truong Thanh Duc, chairman of the BASICO Law Firm, said a property tax law was necessary, however, “people’s incomes must be taken into consideration when studying the law enforcement,” he said.

Dang Hung Vo, former deputy minister of environment and natural resources, agrees with the land tax hike by ten times, saying that housing land tax of 0.4 per cent, 0.5 per cent-tax on business, trade and service land are reasonable. In the future, it could be increased to 0.7 to 1 per cent.

If land tax is high, land prices will fall, while if the tax is low, speculative hoarding might happen. If the tax is high, anyone who wants to buy land must consider whether they can afford the tax or not, he said.

However, he opposed the housing property tax proposal, adding that developed countries impose housing tax depending on house area (not on value).

Nguyen Anh Tu, a State officer living in Ha Noi, told Vietnam News Agency that a house in Ha Noi and HCM City can not be bought for less than VND700 million.

“I had to borrow 70 per cent of the house value from the bank to afford the payment, not to mention additional fees. Now if I have to pay an annual property tax, I don’t know when I could pay off the debt,” he said.

Finance and banking specialist Nguyen Tri Hieu told the agency that imposing tax on land and houses is crucial to create equality in owning properties. However, the property tax law should require land tax only.

“People already pay personal income tax. There will be overlapping taxes if we require people to pay tax on the money they use to buy a house,” he said.

Le Hoang Chau, president of HCM City Real Estate Association, said if the law takes effect, the real estate market will be impacted, slowing business and investment activities.

Disagreeing with the proposal, HCM City Real Estate Association proposed no tax on houses worth less than VND1 billion to support low-income and low middle-income people.

Chau also proposed a 0.4 per cent-tax on housing land, apartment building land and houses worth more than VND1 billion.